CBO strikes back

posted at 12:14 pm on July 27, 2009
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by Ed Morrissey http://hotair.com/

The CBO released a new analysis of the House version of ObamaCare yesterday, after getting blasted by White House budget director Peter Orszag for “exaggerating” the costs associated with the proposal. Douglas Elmendorf tells Rep. Dave Camp (R), the ranking member of the Ways and Means Committee, that the changes proposed by the White House will have little impact on their cost analysis, and that in fact the news gets worse in the second decade after the first runs up a $239 billion deficit:

The net cost of the coverage provisions would be growing at a rate of more than 8 percent per year in nominal terms between 2017 and 2019; we would anticipate a similar trend in the subsequent decade. The reductions in direct spending would also be larger in the second decade than in the first, and they would represent an increasing share of spending on Medicare over that period; however, they would be much smaller at the end of the 10-year budget window than the cost of the coverage provisions, so they would not be likely to keep pace in dollar terms with the rising cost of the coverage expansion. Revenue from the surcharge on high-income individuals would be growing at about 5 percent per year in nominal terms between 2017 and 2019; that component would continue to grow at a slower rate than the cost of the coverage expansion in the following decade. In sum, relative to current law, the proposal would probably generate substantial increases in federal budget deficits during the decade beyond the current 10-year-budget window.

In other words, that $239 billion in Decade 1 was actually the good news. Why will it get worse?

As long as overall spending for health care continued to expand as a share of the economy, people’s share of insurance costs would continue to rise faster than their income, or the government’s subsidy costs would continue to rise faster than the tax base, or both. The proposal limits the share of income that eligible people would have to pay when they purchased coverage in the insurance exchanges, and that share of income would not change over time. In addition, insurance plans offered through the exchanges would be required to pay a specified share of costs for covered services (on average), and that share also would not change over time. Combining those provisions, increases in health care spending in excess of the rate of growth in income would be borne entirely by the federal government in the form of higher subsidy payments—because those payments would have to cover the entire difference between the total premium for insurance coverage and the capped amount that enrollees would pay.

It’s not exactly rocket-science mathematics on display here. If costs go up but premiums and health-insurance payments are capped, guess who pays for the rising costs? The federal government. The Obama administration will claim that they’ve capped costs and people will see their direct payments to health insurers and providers remain fixed, but the government will have to enact massive tax hikes to pay the back-end costs — which will come out of everyone’s pockets. Either that, or the government will have to sharply ration care — which the Obama administration denies will happen.

Obviously, the White House attempt at public intimidation didn’t cause Elmendorf to flinch. Instead, his report will give ObamaCare opponents in the House, Democrats included, ammunition to demand a return to the drawing board.